The High Court case of Mehjoo v Harben Barker attracted a lot of attention both in the media and amongst accountants, regarding specialist tax advice. According to some media reports, the case meant that accountants were required to advise on complex tax avoidance schemes.  Whilst we did not originally agree that the verdict went this fact, the new decision given by the Court of Appeal should help to provide more clarity.

Background

Mr Mehjoo was born in Iraq in 1959 and his parents were of Iranian origin. His accountants were aware of this background as they had acted for him for a number of years, including his first tax returns in the 1980s.

The case therefore revolved around whether the accountants had been negligent in failing to notice his non-domicile status and the impact this would have on his UK tax position on making a gain.

High Court Decision

The High Court originally found that a reasonably competent accountant would have known it was important to consider Mr Mehjoo’s domicile status in the context of his tax affairs.

The accountants claimed that they were not required to give tax planning advice due to the terms of their engagement letter, unless they were specifically asked to do so. This was found to be not the case, in part due to the fact that they had provided such advice on a number of occasions without express instruction. The judge therefore found that the accountants had been negligent in not considering the fact that Mr Mehjoo was non-domiciled.

Court of Appeal Verdict

In the latest decision, it was found that there was a distinction between the type of tax planning work usually carried out by the accountants, and the circumstances surrounding this case, stating that whilst “An accountant who is retained by a client to deal with his personal financial affairs will inevitably have to point out what might be the hidden tax consequences of any particular proposal[….], routine tax advice of this kind, though an important part of an accountant’s ordinary duties, is not what this case is about.”

Lord Justice Patten hearing the case stated that Harben Barker “were not and had never held themselves out to be specialist tax planners; and had never given Mr Mehjoo advice of that sort. It is therefore surprising to say the least that from a course of conduct which did not involve tax planning, they should be taken to have assumed a positive duty to give advice of that kind.”

It was therefore found that the accountants had not been in breach of their duty and their appeal was allowed.

Conclusion

Whilst the latest decision appears to be much more reasonable, accountants should still ensure that they seek suitable specialist advice when asked to advice on complex tax matters.  Eaves and Co have a wealth of experience dealing with such cases, and would be delighted to hear from you.

3 thoughts on “Mehjoo v Harben Barker – Court of Appeal overturns Mehjoo Claim

  1. My view is that the Court of Appeal got this wrong. Accountants (or for that matter lawyers, Chartered Tax Advisers etc) who provide some tax advice should be alert to the possible availability of sophisticated tax planning in a case such as this. In the circumstances, the proper course for the accountants should have been to tax Tax Counsel’s opinion.
    Richard Sowler TD MA(Oxon) CTA(Fellow) Barrister
    The Tax Chambers of Richard Sowler TD 6 Church Road Marina, Douglas, Isle of Man IM1 2HQ
    +44 1624 673978 +44 7624 235000 http://www.taxlaw.im
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  2. Richard,
    I think you are right. Whilst that the Mehjoo case gives some comfort that professionals do not need to discuss every possible alternative in every client situation, each case must be considered on its own facts. As a result advisors, need to be careful about being deemed to have responsibility for areas they may not have expertise in. Clear engagement letters and getting appropriate support seem wise lessons to learn.

    • Absolutely. Clear engagement/ client care letters are vital. I think that best practice will be to draw the client’s attention to the limited nature of the advice that a generalist firm is to give. In some, perhaps many, cases it will also be appropriate to stress that further expert advice may be needed, and to seek the client’s specific acknowledgement of this.

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